The Coverage Gap That Almost Cost a Construction Sale

The situation

Tom's question, when he first called, was blunt: 'If nobody can find the insurance certificates from two of our old policy years, does that mean I'm on the hook forever?' He asked it the way people ask questions they already suspect have a bad answer.

Tom had built his construction company from a two-truck outfit into a business doing tens of millions of dollars in work a year, and after three decades running it he had agreed to sell to a strategic buyer in a transaction valued somewhere in the fifty-to-eighty-million-dollar range. Craig, his longtime business partner with a smaller stake, was ready to retire alongside him. Eight years earlier, the company had absorbed a smaller paving outfit owned by Rejean, a retired business owner who had folded his crews and equipment into Tom's operation rather than wind the business down on his own. The two policy years now in question sat right around that merger, a period when the combined company's insurance program had moved between brokers and, it turned out, one broker's file room had simply not survived the transition.

The buyer's due diligence team worked through years of contracts, payroll records and safety files without incident, until they reached the certificates of insurance. For two consecutive years, no certificate could be located, and the broker of record from that period had since closed its doors, leaving no forwarding file and no one to call. Given the scale of the site work the company had done in those years, the buyer's counsel treated the gap as a real problem. If a claim ever surfaced tied to work performed while the company was, on paper, uninsured, the exposure could land on Tom personally, on the surviving company after closing, or get argued over for years.

Money for the fight was tight. The sale proceeds had not closed yet, and Tom and Craig had no appetite for spending heavily to defend a position when a faster, cheaper path to an answer might exist. That was the situation when they came to us: a possible two-year coverage hole sitting in the middle of an otherwise clean sale, with the buyer's side pushing for a broad indemnity and a price holdback that would have tied up a significant share of the purchase price until the statute of limitations on old claims had effectively run out.

What the documents showed

We started where Tom had not: not with the missing certificates, but with everything adjacent to them. Payroll records showed which crews were active in the gap years and on what kind of sites, letting us map the company's actual site exposure during that window rather than guessing at it. Accounts payable showed premium payments still going out to an insurer each quarter, which told us coverage had almost certainly existed even though the certificates proving it had gone missing. A handful of paid invoices referenced policy numbers in their memo lines, which gave us a thread to pull, and job-costing sheets from two large projects in the gap years listed insurance line items consistent with an active commercial policy rather than a lapsed one.

We contacted the insurer directly rather than relying on the defunct broker. Insurers keep their own underwriting files independent of any broker's records, and after several weeks of back-and-forth with the carrier's archive department, we obtained confirmation that a commercial general liability policy had in fact been in force for both disputed years, along with the coverage limits and a summary of any claims made against it. There had been one small claim, for property damage on a residential driveway job, settled for a modest amount years before and fully resolved. There was no open exposure, no claim in progress, and no indication of a lapse. The carrier also confirmed the renewal dates fell in an unbroken sequence, which ruled out even a brief gap between policy terms.

What the documents actually showed, once assembled, was not a coverage gap at all. It was a records gap: the company had been insured throughout, but could not immediately prove it because the paper trail sat with a broker who no longer existed. That distinction mattered enormously, because it meant the buyer's real risk was not that claims from those years would go unpaid, but that reconstructing proof of coverage might take time if a claim ever surfaced. The two are legally very different problems, and the second one is far cheaper to insure against than the first. A records gap can usually be closed with a written confirmation from the carrier and, if needed, a short indemnity period; a genuine coverage gap invites open-ended exposure that follows the company for years.

We also reviewed the merger paperwork from when Rejean's paving business had folded in, since a change of insured entity mid-policy can sometimes create its own coverage question. That review confirmed the policy had simply been endorsed to add the acquired operations, with no lapse in between, and that the endorsement had been filed with the carrier at the time rather than handled informally. Taken together, the documentary picture supported a much narrower ask than the buyer's counsel had opened with, and gave us a concrete, evidence-backed position to bring to the negotiating table instead of a defensive one.

What we did

1. Triaged the exposure before responding to the buyer. Rather than reacting to the buyer's draft indemnity language line by line, we first worked out privately, using the company's revenue and claims history from comparable years, what the actual worst case looked like if no coverage proof ever surfaced, so we knew the ceiling on what we were negotiating and would not overpay in concessions to solve a smaller problem than the buyer assumed it was.
2. Pulled every adjacent financial record. Payroll, accounts payable and job-costing files from the gap years were gathered and reviewed line by line for anything referencing insurance, since Tom's own files no longer had the certificates and the fastest, cheapest path to proof ran through records the company already controlled rather than records that had vanished along with the broker's office.
3. Went to the insurer, not the broker. We contacted the carrier's own archive function directly, on the reasoning that underwriting files typically outlive any individual broker relationship, and after several rounds of follow-up secured written confirmation of coverage and claims history for both disputed years, including the exact policy numbers and the coverage limits in effect, which became the single most important piece of evidence in the entire negotiation.
4. Reviewed the merger-era policy endorsements. Because the gap years overlapped with the absorption of Rejean's paving business, we checked whether that change had interrupted coverage, since a buyer could reasonably worry about a seam in the policy at exactly the point two companies became one, and confirmed through the carrier's own file that there was none, closing off a line of argument the buyer's counsel had been holding in reserve.
5. Reframed the issue for the buyer's counsel. Once we had the carrier's confirmation in hand, we presented the buyer with a records gap rather than a coverage gap, supported by documentation rather than assertion, which shifted the entire conversation from an open-ended indemnity demand toward a specific, insurable risk with a known, modest claims history and no unresolved exposure behind it.
6. Proposed a capped, time-limited holdback instead of an open indemnity. Given how tight the budget for a fight actually was, we did not push for a full walk-away from the buyer's demand, since that fight would likely have cost more in legal fees than the exposure was ever worth; instead we proposed a modest holdback released after a fixed period, sized to the actual, documented claims history rather than the buyer's initial worst-case assumption.
7. Negotiated the final terms directly with opposing counsel. Two rounds of written exchanges narrowed the holdback amount and the release date considerably, with Tom and Craig kept informed at each step so they could weigh in on how much further to push given their limited appetite, and limited budget, for a drawn-out fight over a risk we had already shown to be small.

The outcome

The deal closed with a holdback well below what the buyer's counsel had originally proposed, released to Tom and Craig after a fixed period rather than tied indefinitely to the limitation period for old claims. It was not a clean win. Tom gave up access to a real slice of the sale proceeds for that period, and the company absorbed the cost of the insurer records search rather than passing it along to the buyer as an offsetting concession. Both sides could live with the result, which is a different thing from either side getting everything they originally wanted at the outset of the negotiation.

Craig's retirement proceeded on the original schedule, since the holdback affected the timing of a portion of the payment rather than blocking the closing itself. Rejean, whose old paving business had unknowingly become the centre of the dispute nearly a decade after he had folded it into Tom's company, was not otherwise affected; the merger paperwork held up under scrutiny, and no seam in coverage at the point of that combination was ever found by either side's counsel.

The holdback period has since expired without any claim being made against it, and the funds were released to Tom and Craig in full, on schedule. Tom's original fear, that a missing certificate meant open-ended personal exposure reaching years into the future, turned out to be the wrong fear; the real risk the deal carried was proving something true, not covering something false. Getting to that distinction quickly, and being willing to concede a bounded, time-limited holdback rather than fighting the buyer to a standstill over an unbounded one, is what kept the deal on track without burning through a legal budget the sellers had made clear from the outset they could not afford to spend chasing a perfect outcome.

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